Ask a UK practice owner what has consumed 2026 and you will hear about quarterly updates, Companies House identity verification, agent registration and an October Budget. Almost nobody will mention pensions. Yet the single largest change to inheritance tax planning in a generation is already law, and it lands in just over six months.
From the 6th of April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person's estate for inheritance tax purposes. The change was enacted in the Finance Act 2026, which received Royal Assent on the 18th of March 2026, and HMRC set out the mechanics in its technical note on inheritance tax on pensions. For firms that prepare estate accounts, support executors, or simply act as the trusted adviser a family calls first, this is not a niche pensions story. It is a workflow, liquidity and expectation management story.
What Actually Changes on April 6th 2027
New section 150A of the Inheritance Tax Act 1984 treats a member as beneficially entitled, immediately before death, to what the legislation calls notional pension property held in a registered pension scheme, a qualifying non-UK pension scheme or a section 615(3) scheme.
- Trustee discretion no longer protects the fund. Most schemes pay death benefits on a discretionary basis, and until now that discretion kept the fund outside the estate. From April 2027 it does not, although discretion still governs when benefits vest in a beneficiary.
- It applies by date of death, not date of payment. If the member dies before 6 April 2027, the current rules apply even if benefits are paid out afterwards.
- Personal representatives carry the liability. They report and pay the inheritance tax on notional pension property. Once benefits vest, beneficiaries become jointly and severally liable with them.
- The normal payment clock applies. Tax is due at the end of the sixth month after death, and late payment interest runs after that.
- Drawdown funds and untouched pots are in scope. Money purchase arrangements, defined benefit lump sums, guaranteed payment continuations and augmented death benefits all feature in the valuation rules.
What Stays Outside the Net
The exclusions matter, because they are where most of the reassurance for worried clients lives.
- Death in service benefits payable from a registered pension scheme, where the member was in employment or other qualifying work immediately before death, are excluded benefits.
- Dependants' scheme pensions are excluded, whatever type of arrangement they are paid from.
- Joint life annuities, where a dependants' or nominees' annuity was purchased together with the member's lifetime annuity, are excluded.
- Trivial commutation of an entitlement to a dependants' scheme pension is excluded to the extent it represents that pension.
- Exempt beneficiaries still matter. Spouse and civil partner transfers, and gifts to charity, remain exempt, although the exemptions are applied by the personal representative on the account rather than netted off the scheme valuation.
Note the traps too. Business property relief, agricultural property relief and loss on sale relief cannot apply to notional pension property, and the option to pay by ten annual instalments is not available. Quick succession relief does still apply where the same pension wealth is taxed twice within five years.
Why This Becomes Your Problem, Not Just the Client's
The practical burden falls largely on personal representatives, which in most cases means the family and whoever they lean on for support. The new process introduces a chain of requests and deadlines that someone has to run.
- Finding the pensions. Personal representatives must take reasonable steps to identify every scheme from which death benefits may be payable, then contact each one.
- Getting valuations. Schemes must provide the open market value at the date of death within 28 days of a request, or an estimate with the basis explained, followed by the final figure within 14 days of obtaining it.
- Getting beneficiary detail. Names, addresses, National Insurance numbers where known, and the value attributable to each beneficiary, due by the later of 28 days from the request or 14 days after beneficiaries are determined.
- Proving who you are before probate. Schemes will need to respond before a grant is issued, so personal representatives will have to evidence their identity and authority using the will, death certificate, declarations and solicitor correspondence.
- Protecting the tax. Where tax may be due, a withholding notice can require a scheme to hold back up to 50 per cent of a beneficiary's entitlement. It can be given from the date of death until 15 months after the end of the month of death, and it is not meant to be used routinely.
- Paying from the pension. The Pensions Direct Payment Scheme lets a personal representative or a beneficiary instruct a scheme to pay inheritance tax and interest straight to HMRC. Notices must be for an exact amount of at least £1,000, and the scheme must pay within 35 days.
There is an income tax dimension as well. Where a beneficiary suffers the burden of the inheritance tax, that portion does not count as taxable pension income, and schemes must report tax free lump sum death benefit figures to personal representatives within three months of the final payment. Where the lump sum and death benefit allowance is exceeded, the personal representative must notify HMRC by the later of 13 months after death or 30 days after becoming aware.
Five Conversations Worth Having Before April 2027
- Build the pension inventory. Ask clients to list every scheme, provider and reference number, and to keep it somewhere their executors will find it. This single step removes more delay than anything else on this list.
- Revisit expressions of wish. Discretion no longer determines whether tax applies, but who receives what still drives the exemptions, the income tax outcome and the size of the bill.
- Stress test liquidity. A tax bill due six months after death, with no instalment option and no relief for illiquid scheme assets, can create a cash squeeze in estates that look comfortable on paper.
- Rethink the order of spending. The long standing habit of preserving the pension and spending everything else deserves a fresh look for clients with estates above the nil rate bands.
- Be careful with gifting. HMRC has confirmed that the normal expenditure out of income exemption is unchanged, and that whether a series of lifetime transfers qualifies depends on the facts in each case. That is a reason for documentation, not for assumptions.
One boundary to respect. Advising on pension products, drawdown strategy or life cover usually strays into regulated advice. Frame your role around the tax and estate mechanics, and work alongside an authorised adviser where the client needs product recommendations.
What to Fix Inside Your Own Firm
- Segment the client base now. Identify clients with meaningful pension wealth and a likely estate above the available nil rate bands. Tag them in your practice management system so the follow up is a task, not a memory.
- Decide your service line. Will you support executors through pension valuations and withholding notices, or refer that work out? Either answer is fine, but decide before the first call arrives.
- Update engagement terms. If you take on estate work, be explicit about scope, who chases schemes, who signs notices and who carries responsibility for reporting later discovered pensions.
- Build the template pack. HMRC will publish templates for withholding and payment notices. Prepare your own request letters for valuations and beneficiary data so nothing starts from scratch.
- Brief the whole team. Juniors taking client calls need to know that a pension question in 2027 is no longer a simple signpost to the provider.
A Sensible Plan for the Next 90 Days
Between now and the end of December, three things are realistic alongside a January filing season. First, run the client segmentation and produce a target list. Second, send one clear client communication that explains the April 2027 change, the exclusions and the pension inventory request, and use it to open planning meetings. Third, watch the Budget on 28 October and follow the secondary legislation on information sharing, which will be laid with a April 6th 2027 commencement date. HMRC has said guidance, interactive tools and supporting materials will be published for April 2027, and draft guidance will be shared with stakeholders over the winter.
The Bottom Line
MTD dominates the diary because it repeats every quarter. This change will not announce itself that way. It will arrive one client at a time, usually at the worst possible moment for the family concerned, with a six month payment deadline and a valuation chase that nobody has planned for. Firms that spend a few hours this autumn building a list, sending one good letter and agreeing who does what will look calm and expert in 2027. Firms that wait will be learning the process while a grieving executor waits on the phone.
